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03 Feb 2021 | 11:25

Eurozone inflation surges in January, beating forecasts

(Sharecast News) - Eurozone inflation rebounded sharply in January, official data showed on Wednesday, beating expectations.

According to flash estimates from Eurostat, the European Commission's statistics office, the annual headline consumer price inflation is expected to be 0.9% in January, compared to -0.3% in December. Analysts had been looking for HICP of 0.5%.

Food, alcohol and tobacco was the biggest driver, ahead 1.5% compared to 1.3% in the previous month, followed by services - up 1.4% against 0.7% in December - and non-energy industrial goods, up 1.4% against a 0.5% fall previously.

Energy fell 4.1%, a notable improvement on December's 6.9% decline.

Stripping out volatile energy and food costs, core inflation eased 0.3% on the month but rose 1.4% annually, above consensus for 0.9%.

In Germany, the Eurozone's largest economy, the annual inflation rate was 1.6% compared to December's 0.7% decline. The other big climber was the Netherlands, up 1.7%.

In Spain inflation rose 0.6%, following a fall of 0.6% a month earlier, while in France, it was 0.8% in January and flat in December.

Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, said the data were "startling".

However, he added: "Overall, we should be taking these numbers with a healthy helping of salt. We are sympathetic to the idea of a sharp increase in core inflation, eventually, as pent-up demand hits a constrained supply side. But this is not what the January numbers reflect.

"We are even inclined to accept the idea of stagflation-lite, driven by sharp increase in energy inflation and supply side pressures driving up core prices, though we shouldn't using today's data to claim that this is how happening. More evidence is needed."

Maddalena Martini, Eurozone economist at Oxford Economics, said: "The marked increase came from the sharp rise in German headline inflation due to the temporary VAT cut reversal. Also a combination of one-off factors - like the end of winter sales in some countries such as France, the reweighting of the harmonized inflation basket components, and the less negative energy prices pressure - played a role in prices growth.

"Weak inflation pressures have started to ease and we expect now the prices recovery to more front-loaded this year. However, we see little implication for the European Central Bank as it should have already considered these factors and have accounted for them in its baseline forecasts.

"Moreover underlying inflation dynamics outside of Germany are significantly weaker, so the ample monetary support remains justified."
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